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Deciding to Pay in USD or the Local Currency

When sending money overseas or making international payments, it may be tempting to simply pay in U.S. dollars. After all, the dollar is almost universally accepted, and figuring out how and where to convert to the local currency can be complicated. But this mentality can lead individuals to overpay in many situations.

Consider these tips when contemplating how to pay for a foreign purchase.

Price of Foreign Purchase

Price is often the most significant factor when it comes to currency conversion and deciding whether to pay in U.S. dollars or the local currency.

“In most cases, it’s cheaper to buy in the local currency.”

— Victor Hinojosa, director of North American Partnerships at Western Union Business Solutions

When making a significant foreign purchase, such as buying expensive artwork, ask for two quotes - one in dollars and the other in the local currency, says Victor Hinojosa, director of North American Partnerships at Western Union Business Solutions. An online foreign exchange provider can conduct a currency conversion and price the numbers out in absolute dollar terms.

Generally, the quote in dollars is higher than the one in the local currency. This is because foreign businesses lose money when they convert dollars into the local currency, due to less competitive exchange rates, Hinojosa says. To compensate for the loss, they provide a higher-dollar estimate.

"In most cases, it's cheaper to buy in the local currency," Hinojosa says. Individuals can also decrease their costs by using a dedicated online foreign exchange service that offers email market-rate alerts.

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Reliability of Currency Exchange

Reliability is another important factor in deciding whether or not to pay in local currency, and that is where an established provider can make the currency exchange process easy.

One risk when sending money abroad through a bank is the possibility of unfavorable fluctuation in the exchange rate during the interim between when the money is sent and when it is received, says Brendan McGrath, CFA, corporate risk manager for Western Union Business Solutions.

"You don't know the rate you're going to get until it gets there, and typically the rate isn't going to be that favorable," he says. This means an individual runs the risk of sending an incomplete foreign payment for his or her purchase.

But a foreign currency exchange provider will convert to the local currency upon execution, essentially securing the exchange rate during transit time to ensure that the amount sent is exactly what is received. "You know what your rate [is] going to be - there's no surprises on the other end," McGrath says.

Also, an online foreign exchange provider can offer a more transparent process where individuals can track transfers to see when they've been received. All of these benefits can make the choice to pay in local currency relatively hassle-free.

Speed of Delivery

Another obstacle when making international payments - especially in emerging markets - is extended delivery time when conducting an international bank transfer.

For example, an international payment sent to India can take between five and six days to be received, McGrath says. Transfers to Bangladesh can take weeks longer. For this reason, it's important for individuals to use an established provider that has relationships with local banks and institutions to expedite the process of an international bank-to-bank transfer, McGrath says.

Before making a foreign purchase, individuals should consider all aspects of the transaction. "Price isn't the only [factor]," McGrath says. "Speed and simplicity are worth a lot, too." With a trusted online foreign exchange provider on their side, individuals can navigate exchange rates to make foreign payments in an uncomplicated way.

Live Cross Rates

USD 69.1780 1.3128 0.7872 53.3650 1.0000 0.8808
CAD 52.6620 1.0000 0.5993 40.6280 0.7609 0.6706
AUD 50.0830 0.9505 0.5700 38.6390 0.7236 0.6378
EUR 78.4920 1.4897 0.8933 60.5560 1.1342 1.0000
GBP 87.8300 1.6669 1.0000 67.7600 1.2692 1.1185

Example: 1USD = xx INR

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